ASML Holding N.V.

day and thank you for standing by welcome to the ASML 2025 third quarter financial results conference call on October 15th 2025 at this time all participants are in a listen-only mode after the speaker's introduction there'll be a question and answer session to ask a question during the session you will need to press star 1 and 1 on your telephone you will then hear an automated message advising your hand is raised to draw your question please press star 1 and 1 again and Please be advised that today's conference is being recorded. I would now like to send the conference call over to Mr. Jim Kavanagh. Please go ahead.

Thank you, Operator. Welcome, everyone. This is Jim Kavanagh, Head of Investor Relations at ASML. Joining me today at the call are ASML CEO Christophe Fouquet and CFO Roger Dassa. The subject of today's call is ASML's 2025 Third Quarter Results. The length of this call will be 60 minutes and questions will be taken in the order that they were received. This call is also being broadcast live over the internet at www.asml.com. A transcript of management's opening remarks and a replay of the call will be available on our website shortly following the conclusion of this call. Before we begin, I would like to caution listeners that comments made by management during this conference call will include forward-looking statements within the meaning of the federal securities law. These forward-looking statements involve material risks and uncertainties. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release and presentation found on our website at www.asml.com and in ASML's annual report on Form 20F and other documents as filed with the Securities and Exchange Commission. With that, I would like to turn the call over to Christoph for a brief introduction.

Thank you, Jim. Welcome, everyone, and thank you for joining us for our third quarter 2025 Resource Conference Call. Let me start by saying how pleased I am with the recent announcement of the reappointment of both Roger Dather and Frederic Schneider-Monnery to the Board of Management. We also announced last week the appointment of Marco Peters as our Chief Technology Officer. This appointment is part of our robust succession planning process, And with over 25 years of experience at ASML, Marco brings a proven track record in technology leadership. Marco will take on the responsibility of driving our technology roadmap forward in support of our customers, and I look forward to our continued collaboration. In addition, ASML Supervisory Board announced that it intends to appoint Marco to the Board of Management as of the company next annual general meeting to be held on April 22nd, 2026. Before we begin the Q&A session, Roger and I would like to provide an overview and some commentary on the third quarter results, as well as provide some additional comments on the current business environment and on our future business outlook. Roger?

Thank you, Christophe, and welcome, everyone. Let me start with our third quarter accomplishments. In the third quarter of 2025, total net sales were 7.5 billion euros, which is within our guidance. Net system sales were at 5.6 billion euros, which includes 2.1 billion euros from EUV system sales, including one high-end A system, and 3.4 billion euros from non-EUV system sales. Net system sales were driven by logic at 65%, with the remaining 35% coming from memory. Install-based management sales for the quarter came in as guided at 2 billion euros. Gross margin for the quarter was also within guidance at 51.6 percent. For operating expenses, R&D expenses came in a bit below guidance at 1.1 billion euros due to the timing of spending, and SG&A expenses basically came in as guided at 303 million euros. The effective tax rate for Q3 was 17.8 percent, For the full year 2025, we continue to expect an annualized effective tax rate of around 17%. Net income in Q3 was 2.1 billion euros, representing 28.3% of total net sales, resulting in an EPS of 5.49 euros. Turning to the balance sheets, we ended the third quarter with cash, cash equivalents, and short-term investments at a level of 5.1 billion euros. Moving to the order book, Q3 net system bookings came in at €5.4 billion, split between €3.6 billion of EUV systems and €1.8 billion of non-EUV systems. Net system bookings in the quarter were slightly weighted towards logic at 53%, while memory accounted for the remaining 47 systems. In Q3, ASML paid the first interim dividend over 2025 of 1.60 euros per ordinary share. The second quarterly interim dividend over 2025 will also be 1.60 euros per ordinary share and will be made payable on November 6, 2025. In Q3 2025, we purchased shares for a total amount of around 148 million euros. As of September 28, 2025, ASML has acquired 9 million of shares under this program for a total of 5.9 billion euros. ASML does not expect to complete the 12 billion euros share buyback program in full within the 2022-2025 timeframe. We intend to announce a new share buyback program in January 2026. With that, I would like to turn to our expectations for the fourth quarter of 2025. We expect Q4 total net sales to be between €9.2 billion and €9.8 billion. We expect our Q4 installed base management sales to be around €2.1 billion. As previously discussed, we expect Q4 to be a very strong quarter, as was the case at Q4 of last year. Gross margin for Q4 is expected to be between 51% and 53%. The expected R&D expenses for Q4 are around 1.2 billion euros, and SG&A is expected to be around 320 million euros. For the full year, we continue to expect total net sales to be around 32.5 billion euros, with a gross margin of around 52%. With that, I would like to turn the call back over to Christophe.

Thank you, Roger. As Roger has highlighted, we finished the third quarter with good financial results. Looking now to the market, there has been a positive news flow across the industry in recent months that has helped to reduce the level of uncertainty that we were reporting last quarter. First, there were a number of announcements around the continued investment in AI infrastructure that supports demand in both leading edge logic and advanced DRAM. Second, the positive momentum around AI seems to extend to more customers in both logic and DRAM. Third, we see continued momentum around customers adopting more EUV layers in both logic and DRAM, migrating multi-patterning deep UV to single exposure EUV, and continuing to support litho intensity. On the other hand, we expect to see China customer demand and therefore our China total net sale in 2026 to decline significantly compared to our very strong business there in 2024 and 2025. We believe that the impact of these dynamics will only partially affect 2026. However, overall, we do not expect 2026 total net sales to be below 2025. In this environment, we also expect the 2026 EUV business to be up, driven by the dynamic in advanced DRAM and leading edge logic, and the deep UV business to be down compared to 2025, driven by the dynamics with our Chinese customer. We will provide more details on our 2026 outlook in January. Turning to technology, there has been a lot of good progress this quarter. with latest achievement on EUV presented at industry conferences, the release of new 3D packaging lithography system, and the announcement of our strategic engagement with Mistral AI. For EUV, we presented a number of papers at recent SPIE and Semicon events that highlighted the progress we have made in helping drive down cost of technology on our customers' most advanced processes. With regards to the maturity of INA, we share data showing that we have now run cumulatively over 300,000 wafers on the system at our customer. Also, our customer has shared very positive data showing that the maturation level of the platform is well ahead of where low NA EUV was at the same stage in its introduction. Further, SK Annex announced this quarter that they started to take delivery of their first INA system, the EXE5200, positioning INA as a critical enabler for future advanced DRAM devices. We are also happy to report that this quarter we shipped iSML's first 3D integration product, the XT260. The XT260 is an iLine scanner designed for applications that include advanced packaging, and offer up to four times the productivity compared to existing solutions. 3D integration is of increasing importance to the roadmaps of our customer and the semiconductor industry. And our customer have been sharing with us the need to innovate in order to meet their future requirements. The discussion with our customers on those requirements point to a good opportunity to transfer some of our holistic lithography technology to 3D integration to meet their future needs. The XT260 is the first example of several opportunities we are evaluating. With the XT260, we are able, as said, to multiply the existing productivity by up to a factor of four using a unique optical design. As mentioned, we shipped our first system this quarter and expect to ship this tool to quite a few more customers in the coming quarters. reflecting the strong interest in this technology solution. With that, I ask Roger to provide some insight into our recent engagement with Mistral AI. Roger?

Thanks, Christophe. In September, we announced that we closed a strategic partnership with Mistral AI, a pioneering company in generative artificial intelligence with a strong business-to-business focus and widely recognized for its leadership in larger language models that assist in areas such as software coding development. ASNL is normally associated with hardware. Software plays an increasing role in driving the precision and speed of our tools. Our partnership with Mistral AI allows us to embed AI across our entire holistic portfolio in order to increase the performance and productivity of our systems and the yield of our customers' processes. Also, we believe this collaboration will allow for faster innovation, resulting in improved time to market, and lower development costs when delivering state-of-the-art solutions to our customers. In addition to the collaboration agreement, ASML has invested 1.3 billion euros in Mistral AI Series C funding round as lead investor, resulting in ASML holding around an 11% share in Mistral AI and having a seat at their strategic committee. It allows us to become even more closely connected to the AI ecosystem.

Thank you, Roger. Looking longer term, as we shared in our capital market day, we start to see that the end market dynamics is leading to a product mix shift towards more advanced logic and DERA. Those applications require a more intensive use of advanced lithography system. We expect that to continue. The combination of our strong productivity roadmap on low NA and the introduction of INA supports further costs of technology reduction and the conversion of more multi-patterning layers to a single EUV exposure, especially on DRAM advanced nodes. In line with our 2024 Capital Market Day, we expect a 2030 revenue opportunity between €44 billion and €60 billion, with gross margin expected between 56% and 60%. With that, Roger and I will be happy to take your questions.

Thank you, Roger. Thank you, Christophe. Now, the operator will instruct you momentarily on the protocol for the Q&A session. Beforehand, I would like to ask that you kindly limit yourself to one question with one short follow-up, if necessary. This will allow us to get through as many callers as possible. Now, operator, could we have your final instructions and then the first question, please?

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now take the first question. And your first question today comes from the line of Francois Bovigny from UBS. Please go ahead.

Thank you very much. My first question. And on this, what you said, Christophe, that you saw positive news in the last months that helped you reduce uncertainty And I was wondering, you know, can you elaborate on this? Because obviously you get these 5 billion orders, which is helping, but I guess just one quarter of orders doesn't give you, you know, the full flexibility on 26 completely. So do you have more visibility in terms of the full capacity they need for 26 now? They give you like more numbers around all of that and all the layers. So just trying to, understand what changed versus last month, or you just rely on positive news out there and you try to extrapolate, just trying to understand this dynamic. Thank you.

Yeah, Francis, I think first, you know, I refer to a lot of positive news on the AI infrastructure. And I think, you know, I think you all know that usually this doesn't translate immediately into order for us. So this takes quite some time. But if you look at the sum of the announcement, I would say this creates a pretty positive backlog of opportunity for AI moving forward. The second one is also quite important. So I think we mentioned the fact that we see now that more customers will benefit from the AI opportunity. I think it's important for many reasons. The first one being that, you know, In order to respond to this huge amount of good news on AI infrastructure, you need to make sure that the market capacity would be high enough. And I think that seeing more customer entering logic opportunity or DRAM opportunity is a pretty good news for the long term. To know exactly how this will affect, you know, the next few years is still difficult to say. I think, as I said before, only part of that will be effective next year. And for the rest, I think it's far too early to say on our side.

Makes sense. Thank you. And the follow-up is on China. I mean, that has been a key driver of growth in the last few years. And you mentioned it will go down significantly. So it's, again, a bit on the visibility side here. I guess you see the strong H2. I would imagine three to six monthly times because it's deep UV. So I would expect you not to see much beyond Q126. So is it some conservatism because you see the strong base and maybe a soft Q1 26? Or do you have the full picture already on 26, how it's looking?

Well, I think that we have about the same clarity that we had last year about this time. And I think around that same time, we still try to provide you a bit of our view of the market. I think on China, we have been very consistent that we saw that the level of business in the last two, three years was very high and in no way normal. So I think we have been experiencing a very high cycle in China, especially through the last couple of years. And again, our expectation and the visibility we have right now is that next year we go back to more reasonable business.

Thank you very much for your answers. You're welcome.

Thank you. Your next question comes from the line of Chris Sanka from TD Cowen. Please go ahead.

Hi, thanks for taking my question. I have two of them. Roger, you kind of mentioned about the recent AI investment strength. Some of that will come in 2026. I'm kind of curious, given your long lead times, how to think about linearity of your revenues or orders in 2026, and any early thoughts on what it implies for 2027?

Yeah, Rish, interesting question. I think we're, you know, we said what we said on 26. I think it's way too early to make any comments on 27. I think you will see that You know, orders came in strongly in the last quarter. Actually, the quarter before that also came in strongly. So, I think linearity of orders is an anomaly. I think we said orders always come in lumpy. I think we've had a healthy run in the past two quarters, but I don't think you can talk about linearity. So, way too early to talk about what this means for 27. I think going back to Christoph's earlier answer, I think You know, the news flow that you got in the past couple of months, I think, is a positive news flow and is a positive news flow, particularly in the median term. But then I'll translate that into concrete expectations of 27 is really, you know, quite a bit too early.

Fair enough, fair enough. And then a follow-up for Christophe, you know, clearly you're seeing strength in DRAM. I'm kind of looking longer term. There's a view that when you go into 4F squared from 6F squared for DRAM architecture, that's actually a negative for EUV. The EUV layer count comes down. Can you just help us understand that, Christophe? Thank you.

Yeah, it's a good question. It's a question we get a lot. The short answer is no. If we look at the number of EUV layer... going from 6S2 to 4S2, we do not expect the number of layers to drop. In fact, as 4S2 roadmap continues after the transition, we, in fact, expect the number of UV layers to continue to grow. And I make that statement after many discussions with our customer. On top of that, what I'd like to add is 4S2 has a bit of a more complex structure So it's, in fact, adding overall more lethal masks, more advanced lethal masks. So there is a benefit also, to some extent, to advanced DPV. So in any case, you still doubt about it. 4S2 is in no way a bad news for ASML. We are looking forward to it.

Thank you.

Thank you. Your next question comes from the line of Joe Katracki from Wells Fargo. Please go ahead.

Yeah, thanks for taking the question. I was wondering if you could talk a little bit more about just the updated commentary for 26. Is that more your more positive view, a bit more DRAM-planted or equally balanced with logic? And then same for more customers benefiting from AI infrastructure build-out. Is that more of a DRAM comment?

Joe, I think it's related to both markets, actually. Last quarter, we talked about uncertainties. I think the uncertainties, and Christoph went into the positive flow that has happened thereafter. One element of the uncertainties that we called out at that point in time was also the uncertainty around tariffs. That was out there. I think there is more clarity on that front right now, but that's also, you know, prevented customers from being very concrete as to what exactly they were going to do and whether they were going to build their capacity. I think that has decreased and I think that has given rise to, you know, to the commentary that we now make on 26. But I would say, in general, when we talk about the positive news flow on the leading edge, leading to our expectation that EUV is going up next year. That is related both to DRAM and to advanced logic.

Thanks for that. And as a follow-up, I was wondering if you could maybe just walk through some of the puts and takes in your gross margin guide. I think what you're guiding for for the December quarter is a bit better than what you're implying a quarter goes. Is that something related to tariffs or mix or something else?

Well, obviously, volume is quite high, right? So that is a positive moving from Q3 to Q4. Mix has many elements to it. Of course, well, we expect two EXEs in this quarter, in Q4, so that is a negative. But on the other hand, we will also have a good low in there. We're a bit positive on upgrade business, as you could see, right, because that business is a little bit up. And if you don't take it all in all, we see, you know, a slight improvement at the midpoint in comparison to what we had in the last quarter. So those are the dynamics. I would say, you know, fairly small movements, but all in all, you know, leading at the midpoint to a slightly better growth margin than maybe we thought we were going to be for a while.

Thank you.

You're welcome.

Thank you. Your next question comes from the line of Didier Simama from Bank of America. Please go ahead.

Yes, thank you for taking my question and good afternoon. My first question is about things that you talked about a little bit before. I just wanted to press you a little bit more. We've all seen the press release of SK Hynix and Samsung following the visit of Sam Holtman to Korea, talking about a letter of intent of 900K with a start-up month of HBM capacity, which is probably more than double the current HBM capacity. So my question is this. My estimate would be that there are about 30 UV tools in DRAM today, not all of them for HBM, but the majority, presumably. That would imply, if we believe those numbers, and many people think those numbers are absolutely grotesque, but let's do it for the sake of the argument, you would need something like 65 EUV tools just for HBM, and then comes on top whatever Samsung, Foundry, Intel, and TSMC would need. So I guess the question is, A, what do you think of those numbers? And then B, do you have enough capacity for EUV low NA let's say, by 2030 to get to satisfy that potential demand?

Well, I think we won't get into the calculation because I think we said it already a couple of times. I think we're a bit careful with how the big announcement can translate into real capacity need on the ground. I think the one thing I'd still like to stress one more time is we see the The broadening of the customer base, I think, is very important news in that matter because whatever you do is the first set of news. I think we can all agree that we need to make sure that the market will not be supply limited. And this has always been a risk with a limited amount of customers supplying AI chips, both in Logic and DRAM. So I think the broadening of the install base is very good news there. And on the last question, you know, we have said for a few quarters that we have been preparing for growth. So we were following those dynamics. And I think we know now that EUV most probably will be stronger next year. So we've been preparing for that. We have, as you know, also worked on longer-term capacity. So we continue to track basically the market carefully. having in mind that we want to be able to follow the demands. So I would say we don't have any concern there at this point of time.

Okay, great. My follow-up for Roger, perhaps, just wanted to understand what I'm missing. So if we look, if we assume, like, let's say you book five billions of orders in Q in Q4, you know, give or take, that would imply you exit calendar year 25 with a backlog just about 30 billion. Even if you strip out the high NA tools in there, expectations, and call it 1.5, 2 billion, that makes me comfortably above, let's say, modest growth for next year. So is there a large portion of the current backlog which has got maturity beyond 26? Is that the reason why you're still hesitant at calling 26 a strong growth year or high single-digit growth year or even double-digit growth year? Thank you.

Well, I mean, of course, that's the big question, right? The big question is, what is in the backlog that pertains to beyond 26? And that is a reasonable number. So, as a result of that, you know, your math doesn't work exactly right for 2026, because there is a pretty healthy number in there for beyond 26. And we also know that there's always a question about a bit of pull in here, a bit of push out there, and that makes it extremely hard to make, at this stage, any concrete projections on 26. But to your point, there is already a healthy order intake in the backlog that is beyond the 26, also as it relates to high NA. I think that the high NA contingent in there is actually pretty strong.

Would you say how many you expect to recognize next year?

INA? No. That's a January topic, DJ. I tried. Thank you, gentlemen.

You did. Thank you, guys. You're welcome. Thank you.

Thank you. Your next question comes from the line of Andrew Gardner from Citi. Please go ahead.

Good afternoon. Thank you for taking the question. I might try... Didier's question in a slightly different angle. Let's see if I have any more. You've highlighted the news flow, Christophe. We can all see it. It feels like you wake up every day to another massive announcement from somewhere within the AI food chain. And you spent a lot of time talking about how that could create a theoretical backlog for you, not yet orders. But I'm just wondering, you are a critical supplier into this market. You have the potential to be a bottleneck for the market. Now, of course, you don't want that to be the case. You're preparing for growth, et cetera. But do you feel like there's sufficient understanding through the chain, whether it's of where you sit or perhaps your customers, How can you, as a critical supplier, make sure that the broader market isn't supply limited come 2027, 2028, given the kind of announcements that we're seeing on a near weekly basis?

Well, so first I think we wish we had a formula to translate all the announcements and what it means exactly for us in the next few years, but I think no one has that. I think that, you know, the experience of 2022 has mostly taught us a lesson to be ready and to have maybe more flexibility because we know the market can swing. So we've done a lot of work on that in the last few years. We have prepared a building, as we discussed before, which are usually the longer lead time items. And for the rest, when it comes to define exactly how many tools we want to produce, I think the lead time is a lot shorter, so we have more flexibility. But I would say we have structurally maybe improved ourselves so that, you know, because we cannot answer those questions after the announcement, we at least have the flexibility. The other thing I would like to add is, of course, Well, our customers at the end of the day tell us what they need, and I think that's a constant dialogue. Dialogue, we try to always reflect with you on a quarterly basis, and I think we continue to do that. So we are prepared. I think we stressed a few times we were preparing for growth, and this was also in light of some of this activity we have seen. And come January, we will be mostly knowing even more about what's happened then, and then we'll continue to monitor the market. But I think we are, I would say, a lot more prepared than we were a few years ago.

And I think Christophe said it exactly right. We are very well prepared, particularly by having invested in the long lead time items. That still, by the way, means that when it comes to shorter lead time items, of course, that you need to have a dialogue with your customer that gives you a timely heads up, right? Because, of course, we need to kick our supply chain into gear. We need to hire the people, et cetera, et cetera. So we have a lot more flexibility than we used to have, but it is also critical for our customers to give us a timely heads up such that we can make sure that, you know, within the long-term infrastructure that we have, we're also able to get to higher output levels and, you know, get the supply chain in place.

Okay. Thank you, Roger. And I suppose without naming names, I mean, do you feel like you're your customers are giving you that heads up, right? Is there a sufficient acknowledgement through the chain?

I think they do their very best, I will say it this way, because they have the same challenge as we do. So I think they do their very best and I think we're very happy with the transparency and the honesty around those discussions because over time that's very helpful, also helpful in trying to to really avoid the bigger surprise. So I feel that this discussion really has improved in the last few years, and I think this is very helpful for them, for us, but also for their customer.

That's great. Thank you very much, guys.

You're welcome.

Thank you. Your next question comes from the line of Tommy Q from Barenburg. Please go ahead.

Hi, thank you for taking my question. So first one is the high MA kind of order pattern and demand ramp-up curve. So as for my understanding, there hasn't been high MA order for about two-ish, two-plus quarters now. So I understand that you're working on your backlog. But does that mean if order only coming in from end of next year, that you may actually have a, let's say, somewhere like 2027 or 2028 order? few quarters of or a year of zero high MA revenue. So the ramp-up curve of revenue of high MA is going to be quite lumpy. Is that correct?

Well, I think, Sue, you first, you summarized to me the situation pretty well. So we are indeed walking on high MA out of the pretty healthy backlog we have. I think I explained in the past that this backlog allow our customer to be covered for, of course, R&D, pretty much down with most of those shipments, but also with the system they want to use for qualification and insertion. And for the rest, the next wave of order we expect to happen basically when the data coming out of the qualification can confirm basically that the maturity of the tool is there. I think when it comes to performance, mostly we have passed that milestone. And yeah, I think as we discussed last quarter, we expect that to happen most probably towards the second half of next year and after that. Now, this being said, you know, we do more than just waiting for order with our customers. So, you know, it's not like nothing is going to happen also in the next 18 months in terms of assessing the progress and therefore also assessing the likelihood of, you know, the type of insertion we're going to look at. So, you know, as we did, you know, we just talked about the way we were preparing for growth on EUV in the last few months, and we did that without having necessarily the full clarity of the demand. We would be able to do that through the discussion with our customer. But in term of, you know, order, so you look, yes, towards end of next year, And in terms of shipments, you look at 28 and beyond.

Okay, thank you. That's very clear. And the second question is on China. So you mentioned that China revenue would be down significantly in 2026, and also that's because of demand. I'm wondering, that's because of the customers are not sure about the demand, so they wouldn't want to commit. Therefore, you've been conservative, or the customer told you for some reasons Their end market demand has been weak, so therefore they are buying less. We don't actually currently see the Chinese market further weakening from where we are today, so I wonder what's the reason for that comment to be weaker significantly down here.

I think the comment that Christoph made, and I think he also said it, goes back to also the comment that we made a year ago, right? So for quite a while, we have been eating into our backlog. That's really what happened. So for quite a while, the China sales were very high, because we've been eating into a substantial backlog because of underserving the Chinese market. So that was the reason why, in fact, a year ago, we said we expect the China sales to be more commensurate with the China percentage in the backlog, which at that stage was around 20% of the backlog. So that's what we said. So actually, as Christoph said, we were actually quite surprised that the China sales this year are as strong as they are. But still, the underlying assumption and our underlying perspective on the Chinese market is still the way it was a year ago. And that has to do with the fact that the Chinese market is a very specific one, right? It's focused on mainstream logic, as we call it. And simply given the dynamics of that market, it is our assessment that the sales level that we currently see this year is very high in comparison to what we would think is a normalized level for the mainstream market. So that's the reason why, you know, why we've indicated this assumption of significant decline. So that's based on our understanding of the market. It's based on the dialogues that we have with our customers. Could that change? Absolutely. I think we've seen, you know, we've seen that this year that it could change in comparison to our perspective. But if you ask us for an honest assessment at this stage, how we think it's going to be in 26, it is as we communicate it.

Okay, thank you.

You're welcome.

Thank you. Your next question comes from the line of Stefan Uri from OdoBHF. Please go ahead.

Yes. Good afternoon, everyone. Actually, I've got two questions. The first one is on the advanced packaging product that you're highlighting in your presentation, the XT-260. Can you maybe say a little bit more about what it's doing, the price of the machine, type of clients who you're competing with, and the market outlook, if you have a few information? And I have another one.

Yeah, so let me give you a bit of context. So I think we mentioned that product in our press release, also in the call, not necessarily because of the high price, high value of the product, but because this is the first product ASML is providing to its customer to support 3D integration. And I think that's mostly where the important news is. I think we all know that when it comes to Moore's Law, our customers are asking us to drive transistor density, still doubling it basically a factor of two every two years. I think that we also know that over time lethal scaling has slowed down. And that created a need basically for more either stacking or packaging of transistor. And our customers are really asking us to help there because what they want is also speed, is also over time accuracy, and I would say some of the technology we have been developing for our Litho portfolio. So this is a bit the starting point. I think we also mentioned most probably we'll be looking at some more product there. I think what's very interesting is the interest we see from our customer on this product. You know, it's an eyeline scanner to answer your technology, so this is based basically on eyeline technology, which, of course, we have had at ASML for many years. But in this case, we have new optical design that's really enabled us to provide 4X improvement on productivity. Competition are basically the people who do iLine as scanners, so I think you know them. But what's very interesting is that if we look at next year, we have quite a few customers very eager to take this technology. And because we provide a nice technology, some good improvement, I will say that the business and the benefit we can get out of this product is quite a lot higher than what has been done historically on ILI.

Okay, and the follow-up would be about the gross margin in 2026. I know you're not giving guidance, and you will say more in January, but given what you have described, i.e. less China, more EUV, but also at the same time more EUV, high NA, can we expect some increase in the gross margin next year?

Yes, Stefan, indeed. We will give more clarity on that, obviously, in January. But I think you're right. A product mix, obviously, is very important in what drives it. And then, as you know, what we ship to China today to a very large extent is immersion. Immersion comes with, you know, a very good gross margin. So less China business would be dilutive on that front. But you're right, EUV comes in with very strong gross margins. So therefore, if we predicted EUV particularly low and A goes up, that would be positive again, on the other hand. And then there is the question on the number of tools that we're going to recognize for high and A, which, of course, is still dilutive to the corporate gross margin. So I think that's an important one. And the other one is, or expectation on the installed base business. You know that particularly the upgrade business is pretty important when it comes to gross margin. So it's all those moving parts exactly where they land that will eventually, you know, determine what their expectation is. But those are indeed the moving parts. It's product mix, and it's the expectation on the composition of the installed base business, which, you know, first and foremost is going to drive that perspective.

Okay. Thank you very much. You're welcome.

Thank you. Your next question comes from the line of Chris Casso from Wolf Research. Please go ahead.

Yes, thank you. Good morning. I guess the first question is on install base, and if you could update us on your thinking as we go into calendar 26. Previously, you had talked about having to back out some of the upgrade revenue as you go into 26. What's the current thinking on install base as we go into next year?

Well, let's first look at the installed base for this year, right? So, I think you will see that our expectation for the installed base this year has actually gone up a bit, if you look at what we guide for Q4, because originally we thought that the first half was going to be, you know, quite a bit stronger than the second half, and now that second half is as strong as the first half. What you see there is that actually the service business is developing quite nicely. And so while we might have had a bit more upgrade business in the first half, the second half is really benefiting from the service business. As you know, the service business is very much tied to the development of the installed basin EUV, right, and with the increase in the installed basin EUV. Of course, that also, you know, further drives up the service business. So that's an important one that I think you can sort of back of the envelope, calculate what the impact of that is going to be for next year. And then the question indeed is how sustainable is the upgrade business? So clearly did it fall off a cliff in the second half of this year? And we'll give you an update in January what our expectation is for 26th.

That's helpful. Thank you. Just as a follow-up and maybe summarizing some of the earlier comments about, you know, some of the more optimism, the optimism you had with regard to some of the AI developments. I mean, it's safe to say that the bookings, you know, total bookings haven't really increased here. Is this more a function of, you know, your customers are telling you based on some of these developments, there's sort of an expectation for, you know, stronger bookings in coming quarters because of the capacity needed to provide that as compared to, you know, what's in the backlog right now. I guess this is an indicator of potentially stronger bookings if this comes to fruition.

I think, Chris, that is indeed the way to look at it. You know our view on bookings, right? Bookings we always say it's not necessarily a good proxy of the business momentum. I think the bookings that we had in this quarter are actually pretty decent, as they were pretty decent in the previous quarter, without being downright spectacular, but pretty decent for sure. But indeed, I think most of the things, most of the positive developments that Christophe talked about, and Christophe actually said it, they only partially affect 26. So most of this, so the AI investments, The fact that multiple customers of us are benefiting from AI, whilst in the past we always said it's only a limited number of customers that are benefiting from AI. The technology progress that Christophe referred to, the fact that we see more and more layer transitioning to EUV, so all that is good stuff, but all of that I would say is good stuff not necessarily being cashed in for 26, but primarily beyond that. I think that's the way to look at it. All good stuff. Definitely some of those having a partial impact on 26, but the great optimism is also, I would say, for what it does to the business in the longer term. Helpful. Thank you. You're welcome.

Thank you. Your next question comes from the line of Tim Schultz and Melanda from Rothschild & Co. Redburn. Please go ahead.

Yeah, hi, thanks for taking my questions. Maybe to begin with, for Christophe, on the high NA technology maturity, could you maybe just talk a little bit about on what measures high NA is kind of ahead of 0.33 at a similar point in time, and then just thinking out to sort of 2028 and that journey, are you kind of halfway there, three quarters of the way there, and then add a quick follow-up for Roger? Okay.

Well, I think it's a good question. So typically when we look at the maturity of the system, I think there's two elements to it. The first one is when do we demonstrate the final specification of the tool at our customer. And when we look at the EXE 5200, we expect that to happen in the next few months, most probably this year. So that means that we validate the overall capability of the system. That's point number one. And point number two is, you know, the availability of the tool, you know, how much, what percentage of the time the tool can be used to run wafer. And I think there are major difference between low NA and high NA is that when we looked at low NA maturity back at the time we were ramping the product, the availability was really dragged down for many years by the source performance. The source was by far the biggest detractor of our maturity on the low NA tool. Now I think you're fully aware that the source of INA is exactly the same as the one on low NA. And if we look at the availability number of the source itself, we are exactly matching the performance of low NA. So what is basically... separating us from today to find a maturity is just a platform itself. And there, our experience is that most probably in 12 months, 18 months from now, we will be in a very good shape. So there's no showstopper in the way we look at it today when it comes to maturity of the tool. There's a few more months we have to work with our customer to validate that. But when I look at the technology, when I look at the reason why we were struggling with low NA, those reasons are not with us with INA. And that's why I think our customers are also eager to report that maturity. That's also what they see, and that's also their logic there.

Great. Very, very helpful. Maybe, Roger, just in terms of profitability, high NA that you recognize revenue on, could you just maybe talk about I know gross margin is dilutive, but, you know, are we positive? What's the sort of runway there? And then maybe just thinking about the operating expenses, given the maturity of the high NA platform, what's the outlook for the sort of cadence of R&D expense, the R&D burden for the business going forward? Thank you.

Yes, and so, yeah, indeed, high NA is dilutive. The key thing that will make it less dilutive or the key thing that will drive up the gross margin is volume, right, because you have a significant capability both in the factory and also in the field for high NA. But that's, you know, that total cost base is only absorbed by a very limited number of tools. So it's volume that is ultimately going to drive up the gross margin. So, you know, as Christophe was saying, you're looking at taking stuff into high volume manufacturing in the 28, 29 timeframe, right? And that's where, in all likelihood, you're going to see meaningful numbers. At that stage, you will see, you know, you will see the gross margin profile improving. I did say at the capital market today that even by 2030, I still expect high NA to be margin diluted, right, because it takes quite a long time, you know, before you get on the maturity curve and before you get significant volume for this to meaningfully contribute. But at that timeframe, once you get meaningful numbers, at that stage, the dilutive nature of it will be limited. In terms of... Are we profitable? What was that?

Sorry, just a bit, but was it profitable at the gross margin level in the quarter, or was it still loss-making? Please.

You mean high in A? Yes. High in A is very low margins. It's very low margins. But you're talking very low positive margins. That's what you're looking at. In terms of operating expenses, R&D, I would say we still have a formidable roadmap ahead of us. So in spite of the fact that we have high NA up and running, you hear us, if you look at the roadmap, if you look at the significant breakthroughs that we think we can still push in terms of low NA, in terms of productivity of those tools, in terms of imaging quality there, but also the progress that we continue to make on some of the DPV tools that we talked about. We still have a pretty formidable roadmap. I would say, however, that we are looking at further increasing the efficiency that we get out of the organization. So from that vantage point, I do believe that you will continue to see us manage both our SG&A and our R&D quite nicely because we do feel that out of the formidable team that we have here at ASML in our R&D department, we can get even more value and efficiency there. So I think you will see us navigate those numbers quite diligently and keep the increases quite controlled. Extremely helpful. Thank you. You're welcome.

Thank you. Your next question comes from the line of Alex Duval from Goldman Sachs. Please go ahead.

Yes. Hi, everyone. Many thanks for the question. You talked today about lithography intensity inflecting positively. I just wondered if you could clarify the timeline you're thinking about here and to what extent this is a function of progress having been made in the gait all around transition versus other factors. And secondly, we've discussed on this call today about the degree of ambition around AI investment. But we've also seen news items talking about AI chip makers being more aggressive on the nodes they target for future chips. And that seems to be somewhat different to how one had thought about where they would locate themselves relative to the bleeding edge. So I wondered if you could talk about the implications for ASML of a faster cadence of these more powerful AI chips over time? Many thanks.

Well, to me, on the first question, I think nothing really new there compared to the last few quarters. I think on Logic, we explained a few times, you know, the gate-all-around transition is happening without an increase on the number of UV layers, just because customers typically do first the transistor change before they start shrinking more aggressively again, which we still expect to happen at A14, A10. So I think very consistent there in the previous view. I think in DRAM, we talked about 4S2 already today. We have got, since, you know, the Capital Market Day last year, we've got a lot of confirmation that, indeed, DRAM could get more aggressive in terms of EUV adoption for 6S2, for 4S2 as well, as I mentioned. So there I would say the – The trajectory is very strong towards more use of advanced LISO moving forward. Now, the second question is a good one, and I think we also mentioned last year in November that more AI application will drive more advanced logic and more advanced DRAM, and I think Most probably that part is still to be seen because we're looking at 12 months, which is a fraction of, you know, a node in terms of timing. But I think what you see happening is what you describe is those applications, the value people can extract out of those applications can justify most probably moving to new nodes that are more expensive, as you have noticed looking at the price of the wafer, but today can be justified by the value of AI. And this has changed indeed the way people used to look at the industry. When we look at the industry driving mobile only, there was a lot of doubt on does the next advanced logic node make sense? I think that those doubts have gone away quite a bit. And I think that the size and the speed of the ramp of two nanometer node on logic are the very first proof of that. But we would expect that also trend to continue. We have not seen yet a real acceleration per se. But, you know, we mentioned again the larger – Customer base for those products, and as you know, also larger customer base also means that you get more competition and potentially also more motivation to move faster on those advanced nodes. So I think that question is a very good one and one that we all have to look at in the next 12 months.

Super. Thank you so much.

Okay, we have time for one last question. If you are unable to get through on this call and still have questions, please feel free to contact ASML Investor Relations with your question. Now, operator, can we have the last caller, please?

Thank you. Your last question comes from the line of Mili Hussini from Susquehanna Financial Group. Please go ahead.

Yes, thanks for squeezing me in. All the good questions have been asked. I just have two follow-up, one for Christophe. Obviously, we're all seeing the headline with AI and everything, and you have been highlighting how AI could drive incremental investment. But the way I see it, you're also constrained with increased concentration of customers, especially in logic, and one customer is doing all the investment for the leading edge. And that by itself drives more volatility in your booking, backlog, and even quarterly revenue. And I'm not asking you to name that customer, but is that the right way of thinking about how AI is incremental, but it does limit your visibility and how to follow up?

Yeah, I don't think we need to mention the customer. Your point is clear. But I think we discussed that. I don't think there was... Any concern in terms of either visibility or in terms of, you know, sometimes pricing power? That's a question we got a lot if we had only one customer. I think the only concern really when you have only one customer is are we going to be supply limited? Are we going to look at a market that is supply limited? Because if you have one customer, wow. you know, the market will have the size of what that market, that customer can deliver. So I think this was a bit our bigger concern. So I think that's a concern that most probably goes beyond ASML, right? It's what we discussed before, because it's great to get all those good news about AI infrastructure investment, but at some point of time, you have to get the chips out. And, you know, as we mentioned a few times already today, I think that the... The news in the last few months of most probably more customers being able to play in AI, both for Logic and DRAM, I think is a very interesting development for the entire market. And that applies also, of course, for us.

Sure. And a follow-up for Roger. How should I think about working capital intensity over the past several quarters? Inventories have actually gone up, same with accounts receivable. As shipment strength improves, should I expect some improvement here with working capital and just overall cash from operation?

Yeah, I think working capital is going up. Inventory is going up, you know, to a large extent because of I&A, right? It takes quite some time before a system is being installed as a result of that, obviously, that drives up the inventory level there. So I think that's a major element. The other element is down payments, right? So that's the other side of the equation. So to the extent that down payments kick in, and that obviously is related to order intake, that's an important negative. I would say those are probably... the two most important elements in there. So, when it comes to high and A, an important element in there, obviously, is reducing cycle time. That's a very important driver of driving down the working capital that is tied up in high and A. And that's something that we're very clearly working on. But, of course, there you need to have the volumes in order to make meaningful progress there. I think the working capital levels that you're currently looking at, I think, are sort of reasonable, I would say, for the business that we have today. To the extent that we're able to drive down cycle time, that, I think, is the single biggest driver of reducing working capital for us.

All right. Thank you.

Now, on behalf of ASML, I would like to thank you all for joining us today. Operator, if you could formally conclude the call, I would appreciate it. Thank you.

Thank you. This concludes the ASML 2025 Third Quarter Financial Results Conference call. Thank you for participating. You may now disconnect.